Option Expiry threatens the rally 16/05/2025

HOT stories for today

US market wrap:

• The S&P 500 notched its fourth consecutive gain on Thursday, closing up 0.41%, while the Dow Jones Industrial Average advanced 0.65%, buoyed by encouraging inflation data. In contrast, the Nasdaq Composite dipped 0.18%, as investors rotated out of high-growth tech stocks.
• Sentiment was lifted by a surprisingly soft Producer Price Index, which showed wholesale prices falling 0.5% in April, offering fresh evidence that inflationary pressures may be easing. However, caution lingered in the air: Federal Reserve Chair Jerome Powell warned of persistent policy headwinds, citing supply-side disruptions that could keep long-term interest rates elevated. Meanwhile, Walmart signaled price hikes, and JPMorgan CEO Jamie Dimon struck a more sober tone, reiterating that a recession remains a possibility despite recent optimism in the markets.
   

Option Expiry threatens the rally
 

• Friday’s options expiration could slow the market’s momentum, as a surge of bullish call contracts is set to expire. According to SpotGamma, the skew toward call options is among the most extreme on record, and their unwinding may disrupt recent gains. Heavy call buying throughout May forced dealers to hedge by buying equities, helping drive the rally. But once those positions expire, that buying pressure could vanish — and even flip bearish.
• “This is more skewed towards calls than I’ve ever seen,” said Brent Kochuba, SpotGamma’s founder. Goldman Sachs estimates $3.4 trillion in contracts expire Friday — typical in size, but unusually lopsided. The put-call ratio has dropped to 0.7, the lowest since February, reflecting bullish sentiment. Danny Kirsch of Piper Sandler echoed the concern, warning of increased volatility next week as hedging flows unwind.

Stocks on the move:

• Coinbase (COIN) — Shares of the crypto exchange dropped 7.2% on Thursday after the company disclosed it's collaborating with law enforcement to identify an unidentified “threat actor.” The individual reportedly bribed contractors based outside the U.S. to access sensitive customer data.
• Applied Materials (AMAT) — The semiconductor equipment manufacturer saw its stock decline by nearly 5% in after-hours trading. The company posted fiscal Q2 revenue of $7.10 billion, narrowly missing analyst expectations of $7.13 billion (LSEG). Segment revenue from semiconductors came in at $5.26 billion, below the forecasted $5.31 billion.
• Take-Two Interactive (TTWO) — Shares slipped 2% following the company’s disappointing full-year bookings outlook, which fell short of Wall Street estimates.
• Cava Group (CAVA) — The Mediterranean fast-casual chain saw its stock fall 4% after issuing full-year adjusted EBITDA guidance of $152 million to $159 million, slightly under the $159.7 million consensus forecast (FactSet). However, Q1 revenue beat expectations, coming in at $332 million versus the projected $327 million.

Today’s action

• Asia-Pacific markets traded mixed on Friday as investors digested Japan’s weaker-than-expected GDP report and braced for additional economic data from across the region. Japan’s Nikkei 225 edged down 0.23% after official figures showed the economy contracted 0.2% quarter-over-quarter for Q1, deeper than the 0.1% decline economists had forecast (Reuters). The softer reading adds pressure on policymakers ahead of the Bank of Japan’s next meeting. Elsewhere in the region, Hong Kong’s Hang Seng Index fell 0.66%, while China’s CSI 300 slipped 0.2%, reflecting lingering caution despite global trade optimism.
• In the U.S., stock futures hovered near flat levels overnight following the S&P 500’s four-session rally, fueled by temporary U.S.-China tariff relief and a series of favorable inflation prints. Dow futures ticked up 41 points (0.1%), while S&P 500 and Nasdaq 100 futures rose by 0.03% and 0.04%, respectively. Attention now turns to Friday’s U.S. housing starts data and the University of Michigan consumer sentiment report, both expected to shed light on the strength of the American consumer heading into summer.

Watchlist: TTWO, AMAT, COIN, CAVA, RBC, AMD, PLTR, NVDA

Bitcoin

• Bitcoin continues to assert its position as a premier hedge against inflation, backed by its fixed supply, decentralized architecture, and unmatched global accessibility. With only 21 million coins ever to exist and no ties to central bank policy, Bitcoin offers a compelling store of value—particularly for economies facing persistent currency devaluation and monetary instability.
• As of May 16, 2025, Bitcoin trades above $102,000, holding steady amid signs of cooling U.S. inflation. Analysts note that the softer April PPI print may push the Federal Reserve to delay potential interest rate cuts, slightly dampening near-term momentum but reinforcing Bitcoin’s long-term narrative as a defensive asset. The digital currency’s stability in the face of shifting macroeconomic forces highlights its growing maturity and strategic relevance, both for institutional allocators and individual investors navigating an uncertain global landscape
  Watchlist: Bitcoin: 74 000-105 500, Ethereum:1500-2800, Solana: 80-180

Forex

• The Japanese Yen (JPY) extended its rally against the U.S. Dollar (USD) for the fourth consecutive session on Friday, driving the USD/JPY pair to a fresh weekly low during Asian trading. Despite Japan’s weaker-than-expected Q1 GDP print, sentiment remains anchored by growing market conviction that the Bank of Japan will raise interest rates again later this year. Additional support for the yen comes from optimism surrounding a potential U.S.-Japan trade agreement and broad-based weakness in the dollar, driven by dovish Fed expectations.
• Meanwhile, EUR/USD edged higher, holding near the 1.1200 level after recovering earlier losses. The move comes as the USD softened in reaction to Thursday’s Producer Price Index (PPI) data, which showed a 0.5% month-over-month decline, while core PPI fell 0.4%, both below forecasts. However, the euro’s upside may remain capped as ECB officials continue to signal openness to further rate cuts later this year.
  Watchlist: EUR/USD: 1.0700-1.1600, USD/JPY: 140-151

Basic Materials

• Gold (XAU/USD) faced renewed selling pressure in Friday’s Asian session, giving back a portion of Thursday’s rebound from the $3,120 level—its lowest since April 10. The precious metal remains under pressure as optimism around the U.S.-China 90-day trade truce tempers recession fears and reduces demand for safe-haven assets. However, lingering geopolitical risks and expectations of Fed rate cuts, which continue to weigh on the U.S. Dollar, may help contain further downside.
• Meanwhile, WTI crude oil extended its pullback, dropping to around $61.20 amid renewed diplomatic momentum. U.S. President Donald Trump signaled progress toward a nuclear agreement with Iran, raising hopes of easing supply constraints. Adding to the bearish tone, EIA data showed a 3.454 million barrel build in U.S. crude inventories for the week ending May 9, reinforcing concerns about oversupply.
  Watchlist: GOLD 2600-3500, US Oil: 55.60-70.00

Key Economic Events Today:

EST time
08:30 am: USD Building Permits
08:30 am: USD Housing Starts
08:30 am: USD Import Prices
10:00 am: USD Consumer Sentiment
10:00 am: USD Inflation Expectations


Earnings

BMO (Before the US Market opens)
RBC                    RBC Bearings
FLO                     Flower Foods
BRC                    Brady Corp.
AMC (After the US Market closes): Enjoy your weekend!

 

The TEFS Analyst team wishes you a successful day!